Chinese dairy imports push up prices

Capital Press

Published:January 7, 2014 9:56AM

China's milk-production crisis and its insatiable need for milk powder has kept global dairy prices elevated for the past six months, following the price hikes resulting from a drought in New Zealand last spring. Elevated prices are expected to continue until world milk production grows to meet demand.

Diseased dairy cattle and tighter food safety rules have led to short milk supplies in China, causing it to increase its dairy imports.

China’s insatiable need for milk powder has kept global prices for dairy commodities at historic highs over the past six months, according to analysts with HighGround Dairy, a division of HighGround Trading Group, a Chicago brokerage firm.

Prices for whole milk powder and skim milk powder at the Global Dairy Trade Dec. 17 auction were $4,958 and $4,868 a metric ton, respectively. That compares with $3,126 and $3,379 a metric ton a year earlier.

Year to date through November, China’s imports of whole milk powder – at 1.177 billion pounds – are up 48 percent over the same period in 2012. Its imports of skim milk powder are up 27.7 percent, for a combined increase in total powder imports of 42.1 percent, according to statistics from China’s Customs agency.

And China’s whole milk and skim milk imports are up 79 percent and 76, respectively over 2011.

In 2012, China represented a 12.4 percent share of the world’s milk powder trade, nearly double the imports of Algeria, the world’s second-largest, imported-powder-consuming country. During the first half of 2013, China’s share of milk powder imports rose to 16.7 percent, more than twice Algeria’s share of 6.1 percent. HighGround reported on Dec. 27

China has likely increased its market share in the last half of the year and continues to be the catalyst for the sharp rise in powder prices this year, HighGround reported.

China was the fourth-largest importer of all U.S. dairy exports in 2013, valued at $573 million from January through October – up 65 percent from the same period in 2012, according to the U.S. Dairy Export Council.

China’s production challenges and world milk supply suggest global dairy prices will remain high for the foreseeable future, HighGround reported.

Whole milk prices will remain close to the $5,000 per metric ton level at least through May, and skim milk powder will rise in the spring to a range of $5,250 a metric ton, HighGround forecasts.

In addition, all other dairy commodities continue ascending in a run that seems endless into 2014, the analysts stated.

“We know better than to think that a bull market has no end. But until there are clear indications that Chinese demand has subsided or milk production outperforms expectations in more regions than just New Zealand (which suffered a drought last spring), the upward trend will remain intact,” they said.

That trend saw the average cheese price at the latest Global Dairy Trade auction at $4,569 a metric ton ($2.07 a pound), compared with $3,470 a year ago. The average butter price was $4,051 a metric ton ($1.84 a pound) compared with $3,765 a metric ton in February – the closest year-ago comparable auction.

“We do know that eventually high prices will cure high prices in the form of production growth and demand degradation,” HighGround analysts stated.

But based on price trends, it appears supplies have not yet balanced with demand and the world has accepted these price points in the short term, they said.